Many people considering bankruptcy are being affected by the decision of several states to delay sending out tax refunds.   One of these states is my state of North Carolina, and I expect to see two different situations come into my office.  First will be the people who were planning on using the tax refund to pay bankruptcy and attorney fees with the refund, and they may find their plans to file bankruptcy delayed until receipt of funds.  Second will be people who were depending on the tax refund to pay something, and when that money isn’t there, that will be the straw that breaks the camel’s back causing them to seek legal advise about bankruptcy. 

For the first group, hopefully a delay in getting the money together to pay an attorney won’t matter too much other than the aggravation of having to wait file bankruptcy.    Many people take a few months to come up with payment for bankruptcy and this often poses no problem.  Depending on the client’s situation, it sometimes makes little difference if a case is filed today, or a few months down the road.  For others, timing is everything.  Each month that passes gives a new set of figures for calculation of the bankruptcy means test, and a debtor’s ability to qualify for Chapter 7 bankruptcy may change with the passing of a single month.

For the second group, they might be helped by this in an odd way.  Many would have likely used the entire tax refund to squeeze out one more month’s payment on their debts, often unsecured debts like credit cards.  Many people who seek my advise come in only after they have exhausted all funds and they have no money left to pay their mortgage or hire an attorney.  By delaying the refund, the client may seek legal advise earlier, while they are still owed money and can make a better decision on how to use it.

The decision to file for bankruptcy is a difficult one, and one that should not be entered into lightly.  If you are having financial problems, the best thing to do is to consult an experienced bankruptcy lawyer to determine if filing for bankruptcy is a good option for you.

see also:

Don’t Lose Your Tax Refund In Bankruptcy by Susanne Robicsek Charlotte NC Bankruptcy Lawyer

Bankruptcy Means Test: Costly and Really Pointless by Susanne Robicsek, Charlotte NC bankruptcy lawyer

BAPCPA The New Bankruptcy Law: A Mean Law by Susanne Robicsek Charlotte NC Bankruptcy Lawyer

Bankruptcy Reform: Costly But Pointless by Cathy Moran, Bay Area CA Bankruptcy Lawyer

Part Four: Kinds Of Income Reported In Bankruptcy; What Is CMI, Also Known As Means Test Income? by Susanne Robicsek Charlotte NC Bankruptcy Lawyer

We know that Congress squelched the proposal that mortgages on your home could be modified in chapter 13. Too bad. Mortgage foreclosures went ahead at the highest pace in recent history as a result. Mortgage modifications are as rare as hen’s teeth.

Some mortgages, however, can be modified.

The key is that mortgages on your home can be modified when the mortgage is not the only security given for the loan.

For example, a client gave the bank a mortgage on their home to further secure a loan on their business, a liquor store. The liquor store failed.

Normally, you can’t eliminate a mortgage on your home except in chapter 13 and then only if the lien is totally unsecured – meaning your house is worth less than the mortgages which come ahead of the lien you want to eliminate.

However, in the case of the bank’s lien which was also given to secure the debt on the liquor store and its assets, it doesn’t matter if the mortgage is fully secured, partially secured or undersecured.  The mortgage can be modified. It can be broken into two parts. The secured part can be paid over a period of 5 years at a reduced interest rate.  The unsecured part can be lumped in with all other unsecured debts and is paid to the extent that it can be from the debtor’s projected disposable income over 5 years under a chapter 13 plan – with no interest.

Some creative lawyers are now arguing that residential mortgage loans further secured by a tax escrow can be modified in chapter 13 just like the mortgage further securing the liquor store loan. Whether that will be allowed remains to be seen.

Rely on creative attorneys on the Bankruptcy Law Network to help you solve your financial problems.

For many people, the decision to file a personal bankruptcy case is deeply emotional. It’s not just a business decision. People think that filing bankruptcy is a personal reflection on themselves. All too many clients start to feel badly about themselves when considering bankruptcy. Financial distress sometimes leads to undesirable behavior. People may turn to solace in the wrong places, with the wrong people, with the wrong substances and the wrong actions. Don’t do that!!

We tell our clients that bankruptcy is a legal remedy.  It is not a permanent condition.

You won’t go through the rest of your life wearing a scarlet B on your head. Your credit reports will start getting better every day after you file your bankruptcy case. No later than 10 years after your filing, they will be completely clear.

We counsel our clients to get rid of these sorts of emotions:

• Fear
• Self-loathing
• Self-hatred
• Dismay
• Anger

We counsel our clients to consider themselves:

• Courageous
• Resolute
• Dedicated
• Principled
• Honorable

Our clients are courageous because they are facing their problems head-on and dealing with them. They are resolute because they are willing to dedicate as much as five years of their disposable income in a chapter 13 plan to pay back some or even all of their debts. They are principled because they are frequently willing to reaffirm debts even though they are not required to do so. And they are honorable because they tell the truth and perform all of their obligations during the course of their bankruptcy case.

Remember – it’s the American Way that an honest debtor shall have a fresh start in bankruptcy.

If you’re filing bankruptcy, then chances are you may may have taken out a payday loan recently, according to a “Do Payday Loans Cause Bankruptcy?” by Paige Marta Skiba of Vanderbilt Law School and Jeremy Tobacman from the University of Pennsylvania.

In theory, I have no problem with the concept of payday loans.  It’s nice to know that if you need some fast cash there’s a way to get it.  And  with the credit crunch, payday loans are a place people can still turn to in an emergency.  But note that I said “in theory.”  The reality of payday loans another story–and a sad one at that.

The Cost of Payday Loans is Astronomical

Many payday loans are about 18% for the term.  That doesn’t sound too bad, but consider this: the term is usually two weeks!  Since there are 52 weeks in a year, a simple estimate of the annual percentage ate (“APR”) would be at least 26 x 18%–or 468% (not including any late fees or any compounding of interest)!

Say Fred borrows $300 from Barney at 18%.  Assume further that every two weeks Barney adds a $15 late fee after every missed payment.  Now assume Fred isn’t able to pay Barney back in time, but he comes into $3000 6 months (26 weeks) after taking out the payday loan.  Does Fred have enough to pay his debt?

Here’s how the debt would be calculated:

2 weeks – $300 x 18% = $354 + $15 (late fee) = $369

1 month – $369 x 18% =  $435.42 + $15 = $450.42

3 months – $793.65 x 18% = $936.51 + $15 = $951.51

6 months – $2710.27 x 18% = $3198.12 + $15 = $3213.12

If Barney were a loan shark, Fred would have two broken legs right now. Ouch!

I know math is a harsh mistress, but I think I would give up my law practice and move to Maui if I could realize more than a 1000% return on my investments!

The authors of “Do Payday Loans Cause Bankruptcy?” claim that many payday lenders actually discourage their customers to pay on time.  The effect is a cycle of debt that is hard to escape leaving many with no alternative but to file bankruptcy.

It’s easy for those of us who don’t need to resort to payday loans to say “don’t do it.”  But the reality is that in this economy may folks find themselves between a rock and a hard place.  It’s a matter of getting the payday loan or eviction, or perhaps getting a payday loan or losing a car.

That Payday Loan is Like a Drug

But payday loans are financial heroin.  They result in the borrower being caught in a never-ending cycle of debt.  And having to borrow from a payday lender is a sure sign of financial problems.  If you’re caught in this trap, seek advice from a bankruptcy lawyer in your area who will evaluate your entire financial situation.

Bankruptcy may be the right choice for your situation if you’re caught in the payday loan trap.  After all, bankruptcy is about giving the “honest but unfortunate” debtor a fresh start.

Russell A. DeMott is a Charleston, South Carolina Bankruptcy Lawyer.

Today, a Wisconsin client asked what we could do to help save his investment property. It’s worth only about $70,000. It has a first mortgage for $80,000 and a second mortgage for $30,000. Our client bought the property at the top of the market. He can afford the first mortgage, but not the second. And he certainly doesn’t want a short sale or a deficiency judgment. He makes enough money that he could afford to pay it. What can be done?

Our client has little other unsecured debt.

But the entire second mortgage really is unsecured – there’s no equity in the building to support it. So in chapter 13, we can treat that debt as unsecured and strip away the second mortgage.  Instead of paying 11% interest on the second mortgage, our client can pay it off in full over a period of five years – and he could afford to do that.  Not only that, but $10,000 of the first mortgage can also be treated as unsecured and paid off in full over 5 years – without interest. That’s because it is perfectly OK to modify a non-residential mortgage loan in chapter 13 even though you can’t modify a mortgage loan secured by your personal residence. Wasn’t that a smart idea of Congress to reject mortgage modification? Gee, we really could have made some progress with our mortgage crisis.

Anyway, our client will be able to keep his building, reduce the mortgage considerably, pay off his debts over a reasonable period of time without interest and get the second mortgage lien released, thanks to the creative use of chapter 13.

Don’t wait until you are ready to retire to consider filing for bankruptcy.   It breaks my heart to see people, especially senior citizens, come to my office as they near or pass retirement, with little savings to help cover future medical and living expenses.  Upon investigation I find that many have used their retirement funds to make payments on credit card or medical debt that they had no real hope of ever paying off.  When you do the math, you can see that for many people all that has been done for years is keep the debt afloat with little or no progress towards paying down the debt.   It is often when they enter retirement and their incomes drop that the collection calls drive my senior clients to seek my help.  Bankruptcy is inevitable, but there is little time left to prepare for the future.

Worse still, if retirement accounts were used to pay debts they were probably protected funds and not within the reach of creditors.  Those funds could have stayed safe until they were needed in retirement years.

I can’t do anything to bring back any of the money that was paid to debt payment instead of preparing for retirement, however bankruptcy might help  stop collection calls and letters, and get people debt free so they might make ends meet going forward.  For these individuals, filing for Chapter 7 bankruptcy may give them the fresh start they need to try to prepare for retirement.  At this stage in life, Chapter 13 bankruptcy may not be an option.  Sadly, so many go forward with nothing more than social security to try to make ends meet, and many people  will not be able to cover their expenses on social security alone even after they file for bankruptcy.

See also:

Money For Retirement by Cathy Moran, California Bankruptcy Lawyer

Borrowing Against Retirement: Using Your Future To Pay For Your Past by Susanne Robicsek Charlotte NC Bankruptcy Lawyer

Your car is one of your most important possessions. You want to keep it when you file a bankruptcy case. Most people have some sort of a car loan. Automobile finance companies are very interested in your bankruptcy case. Most times in bankruptcy, they want to repossess your car right away. Maybe you’ve been behind in your payments. Maybe you don’t have insurance. But if you want to keep your car, you have to reaffirm. And you have to reaffirm right away.

Statement of Intention

You have to state your intention as to whether you want to surrender your car, reaffirm the debt or redeem the vehicle. Simply “riding through” – doing nothing, getting discharged and continuing to pay the car after bankruptcy generally is not available as an option. You have to act on your statement of intention promptly – within 45 days.

The reaffirmation agreement

To sign a reaffirmation agreement, you are contracting to pay the car loan after bankruptcy just as you owed it before. You won’t get a discharge from this debt. If you don’t pay the debt in the future, you’re still liable personally for it. You have to be up to date with payments to reaffirm. Otherwise, you’ll lose the car and still be liable on the debt. You need to be able to afford the loan. Maybe you can, maybe you can’t. Your lawyer must also attest to your ability to pay. Some lawyers just won’t do this. Some lawyers are successful in negotiating a better deal for you as a condition to entering into a reaffirmation agreement. You may have to pay an extra fee for this. Discuss it with your attorney

The reaffirmation hearing

If your lawyer doesn’t sign off on a reaffirmation agreement, you will be called to court on a Reaffirmation Hearing. Don’t be afraid of this. The judge will ask you if you can afford to pay for the car. You’ll explain whether you need the car, whether it’s the best deal you can get and how you can afford it. If all is in order, you can reaffirm before your discharge.

When to file a reaffirmation agreement

A reaffirmation agreement must be signed before discharge. So don’t dilly dally on this point. And if you don’t sign a reaffirmation agreement, the car lender will get an order saying the automatic stay and then try to repossess your car. Laws vary from state to state but in Illinois, your bankruptcy is ground for repossession absent reaffirmation.

If the amount of the first mortgage on a property exceeds the value of the property, it is generally accepted that in Chapter 13, or 11 or 12, a second mortgage or any other junior lien can be avoided, or “stripped off,” and treated as unsecured debt.  However, conventional wisdom is that it cannot be done in a Chapter 7, but I believe that it can, and so does Bankruptcy Judge Dorothy Eisenberg in the Eastern District of New York (Long  Island).

In the case of the Lavelles, the Debtors owned a house valued at $400,000.  Bank of America held the first mortgage in the amount of $411,183, and a second mortgage in the amount of $9,904.   After the Lavelles filed bankruptcy, Bank of America asked Judge Eisenberg for permission to foreclose on the second mortgage –  for “relief from the automatic stay” — but the Lavelles argued that they could not foreclose because the second mortgage should be avoided as wholly unsecured and not treated as secured debt. 

Judge Eisenberg agreed.  Not only could they not foreclose, but the lien was permanently voided.  While the Supreme Court, in a case called “Dewsnup,” has held that partially secured claims (like the Lavelles’ first mortgage) cannot be “stripped down” in Chapter 7, it has never ruled on the issue of a wholly unsecured second mortgage.  Judge Eisenberg explained that the well-recognized holdings in Chapter 13 clearly demonstrate that under the Bankruptcy Code it is appropriate to distinguish partially secured liens from wholly unsecured liens, and that there is no reason why in a Chapter 7 context the same language in the Bankruptcy Code should not void the lien of a wholly unsecured claim.

What does this mean for you?  It may mean that you can file Chapter 7 and avoid a second mortgage while not having to make payments over 3-5 years on a Chapter 13 case.  It may mean that you can strip a second mortgage in a Chapter 7 even if you are not eligible for Chapter 13.  But not all judges agree with Judge Eisenberg.  In fact, two Courts of Appeals have ruled against “lien stripping” in Chapter 7.  So your right to do this is not a sure thing.  But I think it’s worth a try in appropriate cases.

There have been a number of recent news reports about people choosing to “walk away” from their under water homes. One recent example is this CNN story:

Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.

While some states are “non-recourse,” meaning that the mortgage lender can’t get more than they receive at the foreclosure sale, most are not, and allow the lender to get a judgment against the borrower for any loss it suffers when the house is sold. This includes not only principal, but also interest, late fees, auction costs, trustee fees, court costs and legal fees–which often run into the tens (or even hundreds) of thousands of dollars. And this deficiency can end up as a judgment, not only trashing your credit for years, but allowing the lender to garnish wages, and attach bank accounts and cars.

The solution? Make sure that you know what your rights are before you walk away.

If you are filing a bankruptcy case because of massive medical bills while you are pursuing a major medical malpractice claim, you have opened quite a kettle of fish.

It is very important that you tell your bankruptcy attorney all about your medical malpractice case. To see why, click here.

The Cast of Characters

• Your bankruptcy attorney
• Your medical malpractice trial attorney
• The opposing medical malpractice defense attorney
• The bankruptcy trustee
• Your creditors in your bankruptcy case

Each of these players have quite a bit of interest in both your bankruptcy case as well as your medical malpractice case.

You must disclose the medical malpractice case in your bankruptcy papers. You also want to claim any exemption to which you might be entitled.

The bankruptcy trustee has the right to pursue that bankruptcy case in your name

The bankruptcy trustee will want to work closely with your medical malpractice attorney

The defense attorney will take advantage of any failure to disclose the medical malpractice claim in your bankruptcy case.

Points to remember:

• Your medical malpractice claim might be worth more than the claims in the bankruptcy estate
• If that’s true, then the bankruptcy trustee can’t settle the case without your permission and authority. If he tries to do that, you need to scream bloody murder
• It’s better to work cooperatively with the trustee through your medical malpractice attorney to get the largest recovery possible.
• Remember that many of the claims in your bankruptcy case might be medical bills which will be covered by the medical malpractice claim or settlement.
• Don’t sell your medical malpractice claim to scam artists who want to buy it in advance on the cheap.